The One BIG PROBLEM With Options Trading (Important)

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When learning about the world of options trading, many advantages over simple stock investing emerge. These advantages include:

1) The ability to control larger position sizes with small sums of money (leverage), leading to potentially large returns without a large account.

2) Flexibility to choose options strategies for any stock price outcome (increase, decrease, range-bound, or a big move in either direction).

3) Customize probabilities of making money (many options strategies can be structured to have a high probability of profiting).

4) Options are short-term in nature, which means we can be more active and involved with our market positions. Passive investments are quite boring.

But when we learn of these benefits, we can be quick to dismiss traditional investing approaches altogether, which can have disastrous financial consequences. (Check out my other channel which features videos on broader finance/investing topics here: @Chris Butler )

Options are specific financial instruments with common use cases, such as:

1) Reducing risk on existing stock positions, or an entire portfolio. In this case, options are used as a transfer of risk, meaning we put on a position that reduces our risk, while the counterparty to our trade is putting on a position that increases their risk.

2) Gaining leveraged exposure to specific stock price changes with limited downside if we are incorrect about our predictions. In this case, options are being used to speculate.

Speculating with options has benefits over buying stocks on margin (https://youtu.be/RHXBKD6dkSU), because if we fully leverage our accounts in a margined stock position, we can lose everything if the stock price falls less than 100%. With option purchases, we can never lose more than we allocated to the position.

But there’s a huge problem with options trading as a sole approach to building wealth: options are not a store of value.

The best and most sustainable way to build wealth over time with a high probability of success is to purchase assets that serve as a store of value. A store of value is an asset that retains or appreciates in terms of purchasing power through time.

Since options are short-term financial instruments that we cannot just buy and forget about with a high probability of not losing money, options are not a store of value.

By abandoning traditional passive investments in assets that serve as a store of value, we run the risk of not seeing any growth in wealth or purchasing power over time, which is the entire point of engaging in the markets.

By allocating capital to stores of value, we can build a portfolio that retains or grows in purchasing power over time, which allows us to consume more goods and services in the future than we could otherwise afford by consuming our earnings right now.

The purpose of this video is not to say options are bad. They are very effective at accomplishing what they are meant to be used for, but they should not be abused. In my opinion, options should be viewed as a complement to an investment portfolio, but not a substitute for investing in real assets.

Please let me know in the comments if you have any questions, and please share your thoughts on this topic as well! Thanks for watching.

==== ADDITIONAL RESOURCES / VIDEOS MENTIONED ====

My Other YouTube Channel (Finance/Investing/Other): https://www.youtube.com/channel/UCQIPHXnm7ODW0HAdfCr1yDw
@Chris Butler

Options Trading for Beginners (The ULTIMATE Guide): https://youtu.be/7PM4rNDr4oI

Credit Spread Trading Plan (Rules-Based Options Trading): https://youtu.be/XBxDtcPu3PA

=== TASTYWORKS Course Offer ===

Get one projectoption course for free when you open and fund your first tastyworks brokerage account with $2,000 or more: https://www.projectoption.com/free-options-trading-course/

Learn More About tastyworks: https://www.projectoption.com/tastyworks/

Comments

projectoption says:

Food for thought! I know I completely dismissed everything besides options when I was getting started, but I think that's a big mistake long-term. Options definitely have a place in my portfolios and I will be trading options for my entire life. There are a few very specific ways I plan to use them going forward, which I will make a separate video on in the near future.

What do you think? What's your options trading philosophy? There's no wrong answer.

-Chris

Vickie Croley says:

Awesome and very Interesting video reminding people of the bigger picture, the trading market is gaining popularity and the pace is really fast now for a changing world and the cryptocurrency. The stakes are high, and the trends are not waiting for anyone. Currently I make a living trading the financial market and I never had to do it all by myself. Miss H.Jolie has been my guide/expert account manager. As a seasoned trader and as my trainer, he has helped me grow a portfolio of a $960 account to over $6,070 already.

Brayan Griffin says:

Actually, I have to thank this channel. Its been 9 months now since I started and I only use one of the indicator sets shown on this channel. I make above $16400 a month consistently specifically because of the indicator set on this channel, a financial plan on another channel (forgot which), and patience every day. I start my months with $800 and end them with at least $4100 to $16400 each month…

vivek jois says:

Could you also talk about futures? Really curious about it.

Terrence Alford says:

Well balanced and insightful video Chris. I have been both a single stock and option investor for a very long time and so far my single stock investment gains far outpace any option trading gains I’ve seen. The best use of options so far for me has been either as protection or a defined risk way of entering a long stock position as opposed to an outright initial purchase of the underlying equity. I have been trying to learn and implement other option strategies but I’m not seeing consistent gains as yet. While I’m not ready to throw in the towel, but conclusions do seem valid.

Street Plug says:

Great!! honest info. No fluff

Shashi Taylor says:

This the Second video i watched from your Playlist. First was your close to 3 hour video on Options. Excellent!!! I am a senior and new to Investing and Trading. You are absolutely right about long term investment and balancing the portfolio. The problem, for some one like me in the early seventies, is not options, Day Trading or Swing Trading but "Long Term" which I do not have. I am going to watch all your videos and go for options. Please keep up good work. You are a very good teacher.

Steve Cravens says:

People really do but weekly options thinking that's a safe investing strategy.

Penny Lau says:

Love your channel! Learn a lot

Sulayman Barrow says:

I disagree !! long as u stay on sell side,its a win win

Mike Mifsud says:

It is good that you did this video. Too many "get rich quick" people out there. Build your base first. You can then learn how to manipulate more discretionary money. Take a "gambling" account and turn it into a supplementary income vehicle. Need to re-watch the videos on the various options strategies – don't like the idea of collecting premium and getting destroyed (when things go wrong). There are good ways to manage the risk and I will study up. Cheers.

Matt Gimblett says:

Man I gotta be honest, you’re going up against a pretty big tastytrade following that are getting brain washed otherwise, myself included. But I do like what your preaching and it is making sense. Looking forward to the next one

ASHUTOSH KUMAR says:

I am dam agree buddy

Bull Bear Portfolio says:

👍 I'm going to watch all of your videos. I have the investing down solid and definitely happy with my portfolio. I also see what many overlook when investing. I did my first options trade last year and starting to do them more frequently to see how it works out for me. For some reason I gravitate to vertical put spreads.

sagig72 says:

Great video Chris! hey, do you think that LEAPS are better geared towards store of value considering their longer life span? The one problem I see with options is that (perhaps with exception of LEAPS) it is 'timing the market', you always have to have a very specific outlook on both specific time and specific price. To me it feels many times like 'timing the market'. When it comes to stocks or indexes then everyone always says 'dont time the market'. So… some times it's hard for me to reconcile how options aren't also timing the market. What do think of that?

Everpector Evarestus says:

I lost %60 of my portfolio the moment I got into options trading. Is a very risky venture. You loose money even when the stock is going up

Doug Chinn says:

Sell put/calls for credit premium. Take the premium and buy long stock, or long ATM/ITM calls and/or LEAPS for growth (and income from selling covered calls against them). Premium alone only generated 1-3% a month. Long stock, and leveraged long calls, generated much more.

Martin Pennington says:

Im interested in options but we all know how short selling hurt Tesla and even though I know there is a difference i would like to hear if there are useful things about options buying as far as the company's are concerned
I worry about this.

Aarav Nahuel says:

The major challenges investors face may range from controlling impulsiveness to the frail of compulsion. Most newbies and would-be investors often undermine and most often neglect the importance of technical analysis with regards to trading. Technical analysis overly predicts the movement of asset prices regardless of what is happening in the wider or broader market. Essentially, the process involves studying the paths of a particular asset movement in the past so as to establish a sustainable pattern that can be used to predict future movements. Permit me to say that Mr. Ethan Hartman is an expert Trader without flaws, the very best of his kind.

Bob says:

Thanks for all the time, effort and energy you put into projectoption. This is high-grade stuff! I am still new to options, but as a stock trader, you are opening my eyes to new edges. 100%

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